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Crack up boom to continue for global stocks and take gold higher too?

 -- Published: Monday, 23 February 2015 | Print  | Disqus 

By Peter Cooper

With eurozone money printing due to start next month and the Bank of Japan continuing to print more per capita than at the height of Fed QE, there is good reason to think the ‘crack up boom’ in global stocks will last another year or so.

The question for investors is to spot which asset class or country will benefit the most and enjoy the highest rises while this magic lasts. Expect gold to come back into focus as George Soros’s ‘ultimate bubble’.

Currency wars

Europe and Japan are the obvious choices, albeit currency devaluation risks wiping out all those equity price gains. Ask dollar investors in Japan how their stellar stock gains look after adjusting for the slump in the yen.

The euro also looks none too healthy with a war developing in Ukraine that shows no sign of cooling down. On the contrary the anti-government forces seem emboldened by their territorial expansion after the ridiculous cease fire agreement that was no such thing.

In addition, investors might care to cast their eye over such usually reliable global economic indicators like the oil price and the Baltic Dry Index. The latter is now lower than in the trade slump of 2009 with the finger pointed at a worse than officially declared economic slowdown in China.

Hence, this is a ‘crack up boom’ for asset prices with the real economy cracking up while stocks head higher.

The problem with a crack up boom based on money printing is that it will come to a sudden stop without warning, except for all the very clear and explicit warnings that are already written ten-feet tall for anybody to see.

At this stage in the crack up boom – albeit only seen by most participants with the later benefit of hindsight – preservation of capital is more important than taking bold bets on the next country or asset class to go up.

Gold price spike

That said if historical precedent is followed then the final stage of a crack up boom is a surge in anything to do with precious metals. George Soros pointed this out five years ago. Technical charts for the gold mining ETFs suggest this may indeed now just be starting to happen.

At the fundamental level this must reflect a realization that expected Fed interest rate increases are just not going to happen, or at least not in a manner planned and organized by the Fed.

Absent interest rate rise threats gold and silver prices would be very much higher and without them that is where they will undoubtedly go!

George Soros was a bit early calling this bubble in 2010 but the correction of the past three years has only set gold up for an even bigger price spike. Central banks after all cannot print gold. But central bankers can print more and more paper money until the price of gold goes up and up, and that is what they are now doing.

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 -- Published: Monday, 23 February 2015 | E-Mail  | Print  | Source:

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